Executive Summary

Turkey has been an appealing market for investors over the last decade. It experienced strong economic growth on the back of the many positive economic and banking reforms it implemented between 2002 and 2007. After the global economic crisis of 2007, Turkey continued to attract substantial investment as a relatively stable emerging market with a promising trajectory of reforms and a strong, safe banking system. Over the last five years, however, economic and democratic reforms have slowed or in some cases regressed. Growth has also slowed since 2011, and in 2016 was only 2.9% – outpacing some G-20 countries but less than half its 6.1% growth in 2015, and well below Turkey’s historical average. This presents a major challenge for Turkey to meet its ambitious goal of becoming a top ten economy in the world by 2023, the centenary of the founding of the Turkish republic, not to mention providing jobs for a burgeoning population. Additionally, investor sentiment has been hit by a series of major terror attacks, the July 15, 2016 attempted coup, the uncertainty surrounding an April constitutional referendum, and the ongoing “State of Emergency.”

The Turkish market is generally under-penetrated by U.S. businesses and presents many investment opportunities due to its solid economic fundamentals, although its investment climate is increasingly mixed and worsening in some areas. Some established U.S. companies recently increased their investments in Turkey in certain sectors such as technology, consumer goods, and aerospace. However, due to the deteriorating economy and lack of predictability on the security and political front, many existing firms have held off on new investments, and only a few new firms entered the market in 2016. The most positive aspects of Turkey’s investment climate are its favorable demographics and prime geographical position, providing access to multiple regional markets. It is also an island of relative stability and growth in a turbulent region, making it a desirable location for regional operations. Turkey also has a relatively educated work force, developed infrastructure, and a resilient consumption-based economy.

The most negative aspects of Turkey’s investment climate are geopolitical risk and widespread concern over the deterioration of the rule of law and security environment. Many international observers remain concerned about transparency, corruption, and reduced judicial independence. Over the past year, especially after the July 15 coup attempt, the government marginalized critics, confiscated over 850 companies worth $10 billion on terrorism charges, and purged over 100,000 civil servants. The political focus on transitioning to a presidential system, renewed questions over the future of the EU-Turkey relations, the tense security situation, and continuing “State of Emergency” are expected to negatively affect consumer confidence and investor spending going forward.

Key issues to watch include whether or not Turkey finally makes progress on needed structural economic reforms. In order to do so, government officials will need to make difficult political choices to liberalize the market to align with the goal of modernizing Turkey’s EU Customs Union agreement, itself potentially impacted by worsening relations with the EU. Another key issue to watch is the government’s push to require manufacturing and data localization in many sectors, but particularly pharmaceutical and IT. Other issues include tax reform and the worsening independence of the courts and the Central Bank. Turkey’s hosting of three million refugees and political tensions with Russia and EU countries will also create additional economic burdens on the country.

Table 1

Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2016 75 of 175 http://www.transparency.org/
World Bank Report “Ease of Doing Business” 2017 69 of 190 doingbusiness.org/rankings
Global Innovation Index 2016 42 of 128 https://www.globalinnovationindex.org/
U.S. FDI in partner country ($M USD, stock positions) 2015 $5 billion https://www.bea.gov/
World Bank GNI per capita 2015 $9,950 http://data.worldbank.org/

Policies Towards Foreign Direct Investment

Turkey acknowledges it needs to attract significant new foreign direct investment (FDI) to meet its ambitious development goals, as well as finance its current account deficit. As a result, Turkey has one of the most liberal legal regimes for FDI in the Organization for Economic Cooperation and Development (OECD). According to the Central Bank of Turkey, Balance of Payments, Turkey attracted $12.1 billion of FDI in 2016, up from $11.9 billion in 2015. U.S. FDI to Turkey was $391 million in 2016 (provisional) down from $1.6 billion in 2015. In order to attract more FDI, Turkey needs to better enforce international trade rules, ensure the transparency and timely execution of judicial orders, increase engagement with foreign investors on policy issues, and pursue policies to promote strong, sustainable, and balanced growth. It also needs to lift the “State of Emergency” and take other political measures to increase stability and predictability for investors. A strong banking sector, tight fiscal controls, efforts to reduce the size of the informal economy, increasing flexibility of the labor market, improving skills of workers, and continuing privatization of state economic enterprises have the potential to continue to boost the investment environment in Turkey.

Most sectors that are open to the Turkish private sector are also open to foreign participation and investment. All investors, regardless of nationality, face some challenges: excessive bureaucracy, a slow judicial system, high and inconsistently applied taxes, weaknesses in corporate governance, unpredictable decisions made at the local government level, and frequent changes in the legal and regulatory environment, especially given the ongoing “State of Emergency.” The Parliament amended the Law of Obligations (debt regulations), and a new Commercial Code became effective in July 2012. Structural reforms that will create a more transparent, equal, fair, and modern investment and business environment remain stalled. Venture capital and angel investing are still relatively new in Turkey, but legislation should continue to facilitate greater development of these financing opportunities.

Turkey does not screen, review, or approve Foreign Direct Investments specifically. However, regulatory and supervisory authorities were established in order to regulate different types of markets. Some of the important entities in Turkey are as follows: Competition Authority; Energy Market Regulation Authority; Banking Regulation and Supervision Authority; Information and Communication Technologies Authority; Tobacco, Tobacco Products and Alcoholic Beverages Market Regulation Board; Privatization Administration; Public Procurement Authority; Sugar Authority; Radio and Television Supreme Council; and Public Oversight, Accounting and Auditing Standards Authority. Some of the aforementioned authorities screen as needed without discrimination, primarily for tax audits. Screening mechanisms are executed to maintain fair competition and for other economic benefits. If an investment fails review, possible outcomes can vary from a notice to cure, which allows for a specific period of time to correct the problem, to penalty fees. The Turkish judicial system allows for appeals of any administrative decision, including tax courts that deal with tax disputes.

Limits on Foreign Control and Right to Private Ownership and Establishment

There are no general limits on foreign ownership or control, though in some sectors such as pharmaceuticals there is strong pressure to partner with local firms. In many areas Turkey’s regulatory environment is business-friendly. Investors can establish a business in Turkey irrespective of nationality, or place of residence. There are no sector-specific restrictions that discriminate against market access. However, there is increasing pressure in some sectors to partner with local companies, and some discriminatory barriers to foreign entrants, such as on the basis of “anti-competitive practices,” especially in the technology sector. There are some limitations on real estate acquisition by the foreigners within the principle of reciprocity which was recently relaxed with some amendments to the Land Registry Law #2644.

Other Investment Policy Reviews

In recent years, Turkey has not conducted an investment policy review through the OECD. Turkey’s last investment policy review through the World Trade Organization (WTO) was conducted on May 6th, 2012. Turkey has not conducted an investment policy review through the United Nations Conference on Trade and Development (UNCTAD). Turkey has cooperated with the World Bank to produce several reports on the general investment climate that can be found at: http://www.worldbank.org/en/country/turkey/research 

Business Facilitation

The Republic of Turkey Prime Ministry Investment Support and Promotion Agency (ISPAT) is the official organization for promoting Turkey’s investment opportunities to the global business community and providing assistance to investors before, during, and after their entry into Turkey. Its web site is the hub where both foreigners and locals can register their businesses. It is clear and easy to use, with information about legislation and company establishment. (http://www.invest.gov.tr/en-US/investmentguide/investorsguide/Pages/EstablishingABusinessInTR.aspx )

The conditions for setting up a business and share transfer are the same as those applied to local investors. International investors may establish any form of company set out in the Turkish Commercial Code (TCC), which offers a corporate governance approach that meets international standards, fosters private equity and public offering activities, creates transparency in managing operations, and aligns the Turkish business environment with EU legislation as well as with the EU accession process.

Turkey defines micro, small, and medium-sized enterprises according to Decision No. 2012/3834 of the Official Gazette dated November 4, 2012:

  • Micro-sized enterprises: Less than 10 employees annually and less than 1 million Turkish lira of net annual sales or financial statement.
  • Small-sized enterprises: Less than 50 employees annually and less than 8 million Turkish lira of net annual sales or financial statement.
  • Medium-sized enterprises: Less than 250 employees annually and less than 40 million Turkish lira of net annual sales or financial statement.

Outward Investment

The government promotes outward investment via investment promotion agencies and other platforms. It does not restrict domestic investors from investing abroad.

Since 1962, Turkey has negotiated and signed agreements for the reciprocal promotion and protection of investments. As of 2017, Turkey has 75 bilateral investment agreements in force with: Afghanistan, Albania, Argentina, Austria, Australia, Azerbaijan, Bangladesh, Belarus, Belgium, Bosnia and Herzegovina, Bulgaria, China, Croatia, Cuba, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Israel, Italy, Japan, Jordan, Kazakhstan, Kuwait, Kyrgyzstan, Latvia, Lebanon, Libya, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Moldova, Mongolia, Morocco, Netherlands, Oman, Saudi Arabia, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russian Federation, Serbia, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Syria, Tajikistan, Thailand, Tunisia, Turkmenistan, United Arab Emirates, United Kingdom, United States, Ukraine, Uzbekistan, and Yemen.

Transparency of the Regulatory System

The GOT has adopted policies and laws that, in principle, should foster competition and transparency. Accounting, legal, and regulatory procedures appear to be consistent with international norms, including standards set forth by the International Financial Reporting Standards (IFRS), EU, and the OECD. Publicly traded companies adhere to international accounting standards and are audited by well-respected international firms. Copies of draft bills are generally made available to the public by posting them to the websites of the relevant ministry, Parliament, or Official Gazette. Foreign companies in several sectors, however, claim that regulations are sometimes applied in a nontransparent manner, especially under the ongoing “State of Emergency” which grants the government extraordinary powers.

International Regulatory Considerations

Turkey is a candidate for membership in the EU; however the accession process has slowed, with the opening of new accession chapters put on hold. Some though not all Turkish regulations have been harmonized with the EU. Turkey is a member of the WTO.

Legal System and Judicial Independence

Turkey’s legal system provides means for enforcing property and contractual rights, and there are written commercial and bankruptcy laws. Turkey’s court system, however, is overburdened, which sometimes results in slow decisions and judges lacking sufficient time to grasp complex issues. Judgments of foreign courts, under certain circumstances, need to be upheld by local courts before they are accepted and enforced. The Turkish Government is working on judiciary reform that aims at shortening the duration of judicial proceedings and bringing greater efficiency to the Turkish judiciary system through specialized courts (such as Intellectual Property Rights courts, a number of which already exist in Turkey). Recent developments reinforce the Turkish judicial system’s need to undertake significant reforms to adopt fair, democratic and unbiased standards. Worsening rule of law and the GOT’s attempts to control court rulings are especially worrisome. All court cases are open to the public unless a judge decides otherwise, which is normally only under exceptional circumstances of a sensitive criminal case, though it has become increasingly common for cases to be closed to the public on “terrorism” grounds.

Laws and Regulations on Foreign Direct Investment

Turkey’s investment legislation is simple and complies with international standards, offering equal treatment for all investors. The New Turkish Commercial Code No. 6102 (“New TCC”) was published in the Official Gazette on February 14, 2011. The backbone of the investment legislation is made up of the Encouragement of Investments and Employment Law No. 5084, Foreign Direct Investments Law No. 4875, international treaties and various laws and related sub-regulations on the promotion of sectorial investments. Regulations related to M&A include: 1) Turkish Code of Obligations: Article 202 and Article 203, b) Turkish Commercial Code: Articles 134-158, c) Execution and Bankruptcy Law: Article 280, d) Law on the Procedures for the Collection of Public Receivables: Article 30, and e) Law on Competition: Article 7. The government’s primary website for investors is http://www.invest.gov.tr/en-US/Pages/Home.aspx 

Although most U.S. investors have not been directly affected to date, there is an increased perception that the government is willing to use its executive authority to interfere in the court system in ways that could affect foreign investors, to include favoring domestic companies.

Competition and Anti-Trust Laws

The Competition Authority is the sole authority on competition issues in Turkey and deals only with the private sector. (http://www.rekabet.gov.tr/en-US/Mainpage ) Public institutions are exempt from its authority. However, the Constitutional Court can overrule the Competition Authority’s finding of innocence in a competition case, as recently happened with an American firm. There have recently been some cases of Turkish courts blocking foreign company operations on the basis of anti-competitive claims. Such cases can take over a year to resolve, during which time the companies can be prohibited from doing business in Turkey, benefitting their competitors.

Expropriation and Compensation

Under the U.S.-Turkey BIT, expropriation can only occur in accordance with due process of law, can only be for a public purpose, and must be non-discriminatory. Compensation must be prompt, adequate, and effective. The GOT occasionally expropriates private real property for public works or for state industrial projects. The GOT agency expropriating the property negotiates the purchase price. If owners of the property do not agree with the proposed price, they are able to challenge the expropriation in court and ask for additional compensation. There are no known outstanding expropriation or nationalization cases for U.S. firms. Although there is not a pattern of discrimination against U.S. firms, the GOT aggressively targeted businesses, banks, media outlets, mining and energy companies with alleged ties to the outlawed Fethullah Gulen Terrorist Organization (FETO) and/or the July 15 attempted coup in 2016, including the expropriation of 850 private companies worth more than $10 billion.

Dispute Settlement

ICSID Convention and New York Convention

Turkey is a member of the International Center for the Settlement of Investment Disputes (ICSID) and is a signatory of the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards. Turkey ratified the Convention of the Multinational Investment Guarantee Agency (MIGA) in 1987. There are no known arbitration cases involving a U.S. company pending before ICSID. Foreign arbitral awards will be enforced if the country of origin of the award is a New York Convention state, if the dispute is commercial under Turkish law, and as long as none of the grounds under article V of the New York Convention are proved by the opposing party.

Investor-State Dispute Settlement

The U.S.-Turkey BIT ensures U.S. investors have full access to Turkey’s local courts and the ability to take the host government directly to third-party international binding arbitration to settle certain types of investment disputes. There is also a provision for state-to-state dispute settlement. Over the last 15 years, the government has a mixed record of handling investment disputes through international arbitration, with one case resulting in a $30 million payment and the other resulting in no payment.

International Commercial Arbitration and Foreign Courts

The International Arbitration Law, based on the UNCITRAL model law, was adopted in Turkey in 2001. Local courts accept binding international arbitration of investment disputes between foreign investors and the state. In practice, however, Turkish courts have sometimes failed to uphold an international arbitration ruling involving private companies and have favored Turkish firms. The GOT has also recently refused to allow arbitration in cases involving public tenders, which has caused problems for some firms. There are two main arbitration bodies in Turkey: the Union of Chambers and Commodity Exchanges of Turkey (www.tobb.org.tr ) and the Istanbul Chamber of Commerce (www.ito.org.tr). Most commercial disputes can be settled through arbitration, including disputes regarding public services. Parties decide the arbitration procedure, set the arbitration rules, and select the language of the proceedings. The Istanbul Arbitration Center was established in October 2015 as an independent, neutral, and impartial institution to mediate both domestic and international disputes through fast track arbitration, emergency arbitrator, and appointments for ad hoc procedures. Its awards are binding and subject to international enforcement. (www.istac.org.tr/en)

Bankruptcy Regulations

Turkey has a bankruptcy law based on the Execution and Bankruptcy Code No. 2004 (the “EBL”), published in the Official Gazette on June 19, 1932 and numbered 2128. Turkey criminalizes bankruptcy. The World Bank’s Doing Business Report gave Turkey a rank of 126 out of 190 countries for ease of resolving insolvency. (http://www.doingbusiness.org/rankings )

Investment Incentives

Turkey’s regional incentives program divides various regions of the country into one of six different zones, providing the following benefits to investors: corporate tax privilege; customs tax exemption; Value Added Tax (VAT) exemption; employer’s share insurance contributions support; allocation of investment locations; income tax withholding support; land allocation; and government support for credit interests. The program was launched in 2012 and more detailed information can be found at the Ministry of Economy’s incentives website: https://www.trade.gov.tr/ 

The incentives program gives priority to high-tech, high-value-added, globally competitive sectors and includes regional incentive programs to reduce regional economic disparities and increase competitiveness. The new investment incentives’ “tiered” system provides greater incentives to invest in less developed parts of the country is designed to encourage investments with the potential to reduce dependency on the importation of intermediate goods vital to the country’s strategic sectors. Other primary objectives are to reduce the current account deficit, boost investment support for lesser developed regions, increase the level of support instruments, promote clustering activities, and support investments that will create the transfer of technology. The map and explanation of the program can be found at: www.invest.gov.tr/en-US/Maps/Pages/InteractiveMap.aspx  or http://www.invest.gov.tr/en-US/investmentguide/investorsguide/Pages/Incentives.aspx 

Foreign firms are eligible for research and development (R&D) incentives if the R&D is conducted in Turkey. However, investors, especially in the technology sector, say Turkey has a retrograde brick-and-mortar definition of R&D that overlooks other types of R&D investments (such as in internet technologies). Turkey pays close attention to the impact micro-economic factors have on business development and growth and is seeking to foster entrepreneurship and small and medium-sized enterprises (SMEs). Through the Small and Medium Enterprises Development Organization (KOSGEB), the Turkish Government provides various incentives for innovative ideas and cutting-edge technologies, in addition to providing SMEs easier access to medium and long-term funds. There are also a number of technology development zones (TDZs) in Turkey where entrepreneurs are given assistance in commercializing business ideas. The Turkish Government provides support to TDZs, including infrastructure and facilities, exemption from income and corporate taxes for profits derived from software and R&D activities, exemption from all taxes for the wages of researchers, software, and R&D personnel employed within the TDZVAT, and corporate tax exemptions for IT specific sectors, and customs and duties exemptions.

Turkey’s Scientific and Technological Research Council (TUBITAK) has special programs for entrepreneurs in the technology sector, and the Turkish Technology Development Foundation (TTGV) has programs that provide capital loans for R&D projects and/or cover R&D-related expenses. Projects eligible for such incentives include concept development, technological research, technical feasibility research, laboratory studies to transform concept into design, design and sketching studies, prototype production, construction of pilot facilities, test production, patent and license studies, and activities related to post-scale problems stemming from product design. TUBITAK also has a Technology Transfer Office Support Program, which provides grants to establish Technology Transfer Offices (TTO) in Turkey.

Foreign Trade Zones/Free Ports/Trade Facilitation

There are no restrictions on foreign firms operating in any of Turkey’s 20 free zones. The zones are open to a wide range of activities, including manufacturing, storage, packaging, trading, banking, and insurance. Foreign products enter and leave the free zones without payment of customs or duties if products are exported to third country markets. Income generated in the zones is exempt from corporate and individual income taxation and from the value-added tax, but firms are required to make social security contributions for their employees. Additionally, standardization regulations in Turkey do not apply to the activities in the free zones, unless the products are imported into Turkey. Sales to the Turkish domestic market are allowed with goods and revenues transported from the zones into Turkey subject to all relevant import regulations.

Taxpayers who possessed an operating license as of February 6, 2004, do not have to pay income or corporate tax on their earnings in free zones for the duration of their license. Earnings based on the sale of goods manufactured in free zones are exempt from income and corporate tax until the end of the year in which Turkey becomes a member of the European Union. Earnings secured in a free zone under corporate tax immunity and paid as dividends to real person shareholders in Turkey, or to real person or legal-entity shareholders abroad, are subject to 10 percent withholding tax. See the Ministry of Economy’s website: www.ekonomi.gov.tr 

Performance and Data Localization Requirements

The government mandates a local employment ratio of ten Turks per foreign worker. These schemes do not apply equally to senior management and boards of directors, but their numbers are included in the overall local employment calculations. Foreign legal firms are forbidden from working in Turkey except as consultants; they cannot directly represent clients and must partner with a local law firm. There are no onerous visa, residence, work permits or similar requirements inhibiting mobility of foreign investors and their employees. There are no known government-imposed conditions on permissions to invest, including tariff and non-tariff barriers.

There are no performance requirements imposed as a condition for establishing, maintaining, or expanding investment in Turkey. GOT requirements for disclosure of proprietary information as part of the regulatory approval process are consistent with internationally accepted practices, though some companies, especially in the pharmaceutical sector, worry about data protection during the regulatory review process. Enterprises with foreign capital must send their activity report submitted to shareholders, their auditor’s report, and their balance sheets to the Turkish Treasury’s Foreign Investment Directorate every year by May. Turkey grants most rights, incentives, exemptions, and privileges available to national businesses to foreign business on a most-favored-nation (MFN) basis. U.S. and other foreign firms can participate in government-financed and/or subsidized research and development programs on a national treatment basis.

Offsets are an important aspect of Turkey’s military procurement, and increasingly in other sectors, and such guidelines have been modified to encourage direct investment and technology transfer. The GOT is reportedly targeting the energy, transportation, medical devices, and telecom sectors for the usage of offsets. In February 2014, Parliament passed legislation requiring the Ministry of Science, Industry, and Technology (MSIT) to establish a framework to incorporate civilian offsets into large government procurement contracts. The Ministry of Health (MOH) established an office to examine how offsets could be incorporated into new contracts. The law suggests that for public contracts above $5 million, companies must invest up to 50 percent of contract value in Turkey and “add value” to the sector. In general, labor, health and safety laws do not distort or impede investment, although legal restrictions on discharging employees may provide a disincentive to labor-intensive activity in the formal economy.

There are no legal requirements for foreign IT providers to turn over source code or provide access to surveillance for encryption, though in practice foreign ICT companies report GOT pressure to localize data, which they view as a precursor to greater GOT access to user information and source code. The recently amended Law #6493 on Payment and Security Systems, Payment Services and e-money Institutions, also requires financial institutions to establish servers in Turkey in order to localize data. Turkish Banking Regulation and Supervision Board (BDDK) is the authority that issues business licenses as long as companies 1) localize their IT systems in Turkey, and 2) keep the original data, not copies, in Turkey. The regulation on data localization resulted in the departure of one U.S. tech company from the Turkish market, and has chilled investment by other possible entrants to the e-commerce and e-payments markets. The law potentially affects all companies that collect private user data, such as payment information provided online for a consumer purchase.

Turkey enacted a new law on Personal Data Protection in April 2016. The law regulates all operations performed upon personal data including obtaining, recording, storage, and transfer to third parties or abroad. For all data previously processed before the law went into effect, there will be a two year transition period. After two years, all data will be rendered either compliant with new legislation requirements or they will be erased or anonymized. All businesses are urged to assess a status analysis of how they currently collect and store data of their employees, customers, and partners to determine vulnerabilities and risks in regard to legal obligations. Secondly, businesses should conduct a compliance analysis to include the use of legal consent forms, staff training, data flow adjustments, security measures to protect data, and revised contractual obligations of those collecting data on a company’s behalf. According to the law, Personal Data Protection Authority with 200 personnel will be established to ensure compliance, lead necessary inspections by ex officio or upon complaint, and ensure that sanctions are properly imposed on the parties who fail to comply. Punishments for violating the law range from one to four years imprisonment or fines of 5,000 to 1,000,000 Turkish Lira.

Real Property

Secured interests in property, both movable and real, are recognized and enforced, and there is a reliable system of recording such security interests. For example, there is a land registry office where real estate is registered. Turkey’s legal system protects and facilitates acquisition and disposal of property rights, including land, buildings, and mortgages, although some parties have complained that the courts are slow to render decisions and are susceptible to external influence. However, following the coup attempt, the GOT confiscated over 850 companies for alleged terrorist ties, as well as significant real estate holdings. Although the seizures did not directly impact many foreign firms, it nonetheless raises investor worries about private property protections under the continuing “State of Emergency.”

The Ministry of Environment and Urbanization enacted a law on title-deed registration in 2012 removing the previous requirement that foreign purchasers of real estate in Turkey had to be in partnership with a Turkish individual or company that owns at least a 50 percent share in the property, meaning foreigners can now own their own land. The law is also much more flexible in allowing international companies to purchase real property. The new law also increases the upper limit on real estate purchases by foreign individuals to 30 hectares and allows further increases up to 60 hectares with permission from the Council of Ministers. In order to ensure that land has a clear title, interested parties may inquire through the General Directorate of Land and Cadastre (www.tkgm.gov.tr ). Turkey’s first mortgage law was adopted in 2007.

Intellectual Property Rights

The passage of a much anticipated comprehensive Intellectual Property Rights (IPR) law in December 2016, the first in modern Turkey’s history, marked an important step forward in the country’s IPR development. The law brings together a series of “decrees” into a single, unified, modernized legal structure. It also greatly increases the capacity of the country’s patent office, and improves the framework for commercialization and technology transfer. However, while the law is much improved, enforcement remains lacking. For this reason, for 2016 Post recommended Turkey again be included in USTR’s Special 301 Report as a Watch List country. IPR enforcement suffers from a lack of awareness and training among judges and officers, as well as a lack of prioritization relative to terrorism and other concerns. Law enforcement officers also do not have ex officio authority to seize and destroy counterfeit goods. Counterfeit goods are prevalent in the local market. Software piracy is also high.

Additionally, the practice of issuing search and seizure warrants varies considerably. IP courts and specialized IP judges only exist in major cities. Outside these areas the application for a search warrant has to be filed at a regular criminal court (Court of Peace) and/or with a regular prosecutor. The Courts of Peace are very reluctant to issue search warrants. Although by law “reasonable doubt” is adequate grounds for issuing a search and seizure order, judges often set additional requirements, including supporting documentation, photographs, and even witness testimony, which risks exposing companies’ intelligence sources. In some regions Courts of Peace Judges rarely grant search warrants, for example in popular tourist destinations. Overall, it is difficult for investors to protect their rights and general IPR enforcement is deteriorating, according to some. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en 

Capital Markets and Portfolio Investment

The Turkish Government strongly encourages portfolio investment. An effective regulatory system exists to encourage and facilitate portfolio investment. There is sufficient liquidity in the markets to enter and exit sizeable positions. Existing policies facilitate the free flow of financial resources into the product and factor markets. The government respects IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions. Credit is generally allocated on market terms, though the GOT has increased low- and no-interest loans for certain parties, and pressured public banks to increase their lending, especially for public projects and electoral priorities. Foreign investors are able to get credit on the local market. The private sector has access to a variety of credit instruments.

Money and Banking System

The Turkish banking sector is relatively healthy. The estimated total assets of the country’s largest banks are as follows as of March 31, 2017: Ziraat Bankasi A.S. $109.75 billion, Is Bankasi – $97.71 billion, Garanti – $93.57 billion, Akbank $85.33, Yapi Kredi Bankasi $78.96. According to financial sector contacts, the share of non-performing loans in the sector was approximately 3.5% as of January 2017. Turkey has a central bank system. The only requirements for a foreigner to open a bank account in Turkey are a copy of their passport and either an ID number from the Ministry of Foreign Affairs or a Turkish Tax ID number. The Turkish Government has taken a number of important steps in recent years to strengthen and better regulate the banking system. A 2005 revision of the Banking Law brought tighter bank regulation, notably by broadening the range of expertise inspectors can draw on when conducting on-site inspections. The Turkish Government adopted a framework Capital Markets Law in 2012, aimed at bringing greater corporate accountability, protection of minority-shareholders, and financial statement transparency.

The independent Banking and Regulation Supervision Agency (BRSA) monitors and supervises Turkey’s banks. The BRSA is headed by a board whose seven members are appointed for six-year terms. Bank deposits are protected by an independent deposit insurance agency, the State Deposit Insurance Fund (SDIF). Because of historically high local borrowing costs and short repayment periods, foreign and local firms frequently seek credit from international markets to finance their activities. Foreign banks are allowed to establish operations in the country.

Foreign Exchange and Remittances

Foreign Exchange

Turkish law guarantees the free transfer of profits, fees, and royalties, and repatriation of capital. This guarantee is reflected in Turkey’s 1990 Bilateral Investment Treaty (BIT) with the United States, which mandates unrestricted and prompt transfer in a freely-usable currency at a legal market-clearing rate for all investment-related funds. There is little difficulty in obtaining foreign exchange, and there are no foreign-exchange restrictions, though in 2016 the GOT pressured businesses to conduct trade in lira so as to prevent further depreciation. Funds associated with any form of investment can be freely converted into any world currency; however, the GOT recently took measures to prevent individuals from trading currency on many international Forex websites. The exchange rate is determined by a free floating exchange rate, though in late 2016 the GOT began taking measures to stabilize the lira.

Remittance Policies

In Turkey, there have been no recent changes or plans to change investment remittance policies, and indeed the GOT in 2016 actively encouraged the repatriation of funds. There are also no time limitations on remittances. Wait periods for dividends, return on investment, interest and principal on private foreign debt, lease payments, royalties, and management fees do not exceed 60 days. There are no limitations on the inflow or outflow of funds for remittances of profits or revenue. Turkey is not subject to a compliance program, but is a country of primary concern to the Financial Action Task Force (FATF). The FATF first included Turkey in its Public Statement in 2010, for Turkey’s lack of adequate terrorism financing legislation and the lack of a legal framework within which to freeze terrorist assets. In 2013, Turkey took legislative action to improve its compliance with international standards. Based upon an analysis of Turkey’s overall legislative framework, together with evidence of its implementation over time, in June 2014, FATF removed Turkey from its Public Statement.

Sovereign Wealth Funds

The GOT announced the creation of a Sovereign Wealth Fund (SWF) in August 2016. The fund consists of shares of SOEs and is designed to serve as collateral for raising foreign debt. In February 2017, several leading SOEs, such as Turkish Airlines and HalkBank, were transferred to the SWF. The SWF is still being set-up and therefore many details about its structure and operation remain unknown.

As of 2016, the sectors with active SOEs include mining, banking, telecom, and transportation. The full list can be found here: http://euygulama.dpb.gov.tr/devletteskilati/kontrollu/Kit.aspx  Allegations of unfair practices by SOEs are minimal, and the Embassy is not aware of any ongoing complaints by U.S. firms. Turkey is not a country party to the World Trade Organization’s Government Procurement Agreement. Turkey is a member of the OECD Working Party on State Ownership and Privatization Practices,, and new laws enacted in 2012 by the Turkish Competitive Authority closely govern SOE operations. In 2015 at the Antalya Leaders’ Summit, G20 Leaders endorsed the new global standard on corporate governance which will help policy makers to evaluate and improve their national corporate governance frameworks with a view to promote market-based financing and to boost long-term investment. The G20/OECD Principles of Corporate Governance represent a shared understanding with respect to corporate governance standards and practices in areas such as transparency, disclosure, accountability, board oversight, shareholder rights and the role of key stakeholders. They also provide recommendations for national policymakers on executive remuneration, the behavior of institutional investors and how stock markets should function.

Privatization Program

The GOT has continued to make progress on privatization over the last decade. Of 272 companies the state once owned, 54 are fully privatized. Transactions completed under the Turkish privatization program generated $681 million in 2016. The Turkish government says it is committed to continuing the privatization process despite the contraction in global capital flows. However, other measures, such as the creation of a Sovereign Wealth Fund with control over major state owned enterprises, suggests the government sees greater benefit to using some public assets to raise additional debt rather than privatizing them. Accordingly, the GOT has shelved plans to increase private Halkbank and Turkish Airlines, bulwarks of state-ownership, and instead moved them and other SOE’s into the newly created Sovereign Wealth Fund. More information about privatization initiatives can be found at the Prime Ministry’s Privatization Administration’s website at: www.oib.gov.tr/index_eng.htm .

In Turkey, responsible business conduct (RBC) is gaining traction and more is being expected of companies. Reforms carried out as part of the EU harmonization process have had a positive effect on laws governing Turkish associations, especially non-governmental organizations (NGOs). Turkey has not yet established a central coordinating office or information agency to assist companies in their efforts, and the topic of RBC is handled by the various ministries. Some U.S. companies have targeted RBC activities towards improving education in Turkey.

NGOs that are active in the economic sector, such as the Turkish Union of Chambers and Commodity Exchanges (TOBB) and the Turkish Industrialists’ and Businessmen’s Association (TÜSIAD), issue regular reports and studies, and hold events aimed at encouraging Turkish companies to become involved in policy issues. In addition to influencing the political process, these two NGOs also assist their members with civic engagement. The Business Council for Sustainable Development Turkey (www.tbcsd.org  ) and the Corporate Social Responsibility Association in Turkey (www.csrturkey.org ), founded in 2005, are two associations devoted exclusively to issues of responsible business conduct. The Turkish Ethical Values Center Foundation (www.tedmer.org.tr  ), the Private Sector Volunteers Association (www.osgd.org ) and the Third Sector Foundation of Turkey (www.tusev.org.tr  ) also play an important role.

Corruption remains a serious concern, a reality reflected in Turkey’s sliding score in recent years in Transparency International’s annual Corruption Perceptions Index, where it ranked 75 of 176 countries and territories around the world in 2016. Government mechanisms to investigate and punish alleged abuse and corruption by state officials remained inadequate, and impunity remained a problem. Though independent in principle, the judiciary remained prone to government, and particularly executive branch, influence, including with respect to the investigation and prosecution of major corruption cases. The “State of Emergency” worsened the situation by suspending the country’s normal legal mechanisms. See the Department of State’s annual Country Reports on Human Rights Practices for more details. The government does not actively encourage private companies to establish internal codes of conduct that prohibit bribery of public officials. Turkey is a participant in regional anti-corruption initiatives, specifically co-heading the G20 Anti-Corruption working group with the United States. Locally, the Prime Ministry Inspection Board and other state institutions are responsible for combating corruption.

Public procurement reforms were designed in Turkey to make procurement more transparent and less susceptible to political interference, including through the establishment of an independent public procurement board with the power to void contracts. Critics claim, however, that government officials have continued to award large contracts to firms friendly with the ruling Justice and Development Party (AKP), especially for large public construction projects.

Turkish legislation outlaws bribery, but enforcement is uneven. Turkey’s Criminal Code makes it unlawful to promise or to give any advantage to foreign government officials in exchange for their assistance in providing improper advantage in the conduct of international business.

The provisions of the Criminal Law regarding bribing of foreign governmental officials are consistent with the provisions of the Foreign Corrupt Practices Act of 1977 of the United States (FCPA). There are, however, a number of differences between Turkish law and the FCPA. For example, there is not an exception under Turkish law for payments to facilitate or expedite performance of a “routine governmental action” in terms of the FCPA. Another difference is that the FCPA does not provide for punishment by imprisonment, while the Turkish law provides for punishment by imprisonment from four to 12 years. The Prime Ministry’s Inspection Board, which advises the Corruption Investigations Committee, is responsible for investigating major corruption cases brought to its attention by the Committee. Nearly every state agency has its own inspector corps responsible for investigating internal corruption. The Parliament can establish investigative commissions to examine corruption allegations concerning cabinet ministers; a majority vote is needed to send these cases to the Supreme Court for further action.

Turkey ratified the OECD Convention on Combating Bribery of Public Officials and passed implementing legislation in 2003 to provide that bribes of foreign officials, as well as domestic, are illegal. In 2006, Turkey’s Parliament ratified the UN Convention against Corruption.

Resources to Report Corruption

Contact at government agency responsible for combating corruption:

Prime Ministry Inspection Board
Basbakanlik Merkez Bina Zemin Kat No:11 Bakanliklar/ANKARA
Phone : +90 312 422 24 00 Fax : +90 312 422 24 99

Contact at “watchdog” organization:

Seref Malkoc
Chief Ombudsman
The Ombudsman Institution
Kavaklidere Mah. Nevzat Tandogan Caddesi No:4 Cankaya ANKARA
+90 312 465 22 00

Oya Ozarslan
Chair of the Board
Transparency International –Turkey Branch
19 Mayis Mah. Operatör Raif Bey Sok. Niyazi Bey Apt. 30/5, Sisli, ISTANBUL
+90 533 361 6158

Turkey regularly experiences politically-motivated violence, ranging from police response to civil demonstrations to unidentified attacks on opposition-party offices (hundreds of attacks were documented against Peoples’ Democratic Party offices and some were burned between the June and November elections in 2015), or mob attacks on media outlets (such as Hurriyet and Sabah in the fall of 2015). In July 2016 an attempted coup resulted in the death of more than 240 people, and injured over 2,100 others. Since the July 2015 collapse of the cessation of hostilities between the government and the Kurdistan Workers’ Party (PKK) [also operating as the Kurdistan People’s Congress (KCK), Kongra Gel (KGK), or via splinter groups like the Kurdistan Freedom Hawks (TAK)], PKK terrorist attacks and violence between government security forces and the PKK has claimed the lives of more than 200 civilians and hundreds of security forces.

Other U.S.-designated terrorist organizations such as Islamic State of Iraq and Syria (ISIS), the indigenous Revolutionary People’s Liberation Party–Front (DHKP/C), and TAK also increased attacks in Turkey in 2016. Individuals allegedly acting under the influence of ISIS conducted several suicide terror attacks. The indigenous terrorist organization DHKP/C, established in the 1970s and designated by the U.S. in 1997, is responsible for several attacks against the U.S. Embassy in Ankara and the U.S. Consulate General Istanbul in recent years. The DHKP/C has stated its intention to commit further attacks against the United States, NATO, and Turkey. In addition, violent extremists associated with other groups have transited Turkey en route to Syria.

There have also been instances in past years of violence against religious missionaries and others perceived as proselytizing for a non-Islamic religion in Turkey. Perpetrators have threatened and assaulted Christian and Jewish individuals, groups, and places of worship, including several high-profile murders over the last decade. Anti-Israeli sentiment remains high.

Turkey has a population of 79.8 million, with 23.7 percent under the age of 14 as of 2016. Over 92.3 percent of the population lives in urban areas. Official figures put the labor force at 30.8 million in 2015. Approximately one fifth works in agriculture while another fifth works in industrial sectors. The country retains a significant informal sector. In 2016, the official unemployment rate rose to 10.9% (from 10.3% in 2015), with 22.6% unemployment among those 15-24 years old. Turkey provides twelve years of free, compulsory education to children of both sexes in state schools. Authorities continue to grapple with facilitating legal employment for working-age Syrians, a major subset of the over 2.7 million displaced Syrian men, women, and children—unknown numbers of which were working informally—in the country in 2016.

Turkey has an abundance of unskilled and semi-skilled labor, and vocational training schools exist at the high school level. There remains a shortage of high-tech workers. Individual high-tech firms, both local and foreign-owned, typically conduct their own training programs. The Ministry of Science, Industry and Technology has launched a program with TOBB to provide skilled laborers to meet manufacturing sector needs. Turkey has also undertaken a significant expansion of university programs, building dozens of new colleges and universities over the last decade.

The use of subcontracted workers for jobs not temporary in nature remained common, including by firms executing contracts for the state. Generally ineligible for equal benefits or collective bargaining rights, subcontracted workers—often hired via revolving contracts of less than a year’s duration— remained vulnerable to sudden termination by employers and, in some cases, poor working conditions. Employers typically utilized subcontracted workers to minimize salary/benefits expenditures and, according to critics, to prevent unionization of employees.

The law provides for the right of workers to form and join independent unions, bargain collectively, and conduct legal strikes. The government generally respected these rights with significant legal and practical restrictions. A minimum of seven workers is required to establish a trade union without prior approval. To become a bargaining agent, a union must represent 40 percent of the employees at a given work site and one percent of all workers in that particular industry. Certain public employees, such as senior officials, magistrates, members of the armed forces, and police, cannot form unions. Nonunionized workers, such as migrants, domestic servants, and those in the informal economy, are also not covered by collective bargaining laws.

Unionization rates generally remain low. Independent labor unions—distinct from their government-friendly counterpart unions—reported that employers continued to use threats, violence, and layoffs in unionized workplaces across sectors. Service-sector union organizers reported that private sector employers sometimes ignored the law and dismissed workers to discourage union activity. Turkish law provides for the right to strike but prohibits strikes by public workers engaged in safeguarding life and property and by workers in the coal mining and petroleum industries, hospitals and funeral industries, urban transportation, energy and sanitation services, national defense, banking, and education. The law explicitly allows the government to deny the right to strike for any situation it determines a threat to national security. Authorities invoked this power in 2015. Turkey has labor-dispute resolution mechanisms, including the Supreme Arbitration Board, which addresses disputes between employers and employees pursuant to collective bargaining agreements. Labor courts functioned effectively and relatively efficiently. Appeals, however, can last for years. If a court ruled that an employer had unfairly dismissed a worker and should either reinstate or compensate him or her, the employer generally paid compensation to the employee along with a fine.

Turkey has ratified key International Labor Organization (ILO) conventions protecting workers’ rights, including conventions on Freedom of Association and Protection of the Right to Organize; Rights to Organize and to Bargain Collectively; Abolition of Forced Labor; Minimum Age; Occupational Health and Safety; Termination of Employment; and Elimination of the Worst Forms of Child Labor. Implementation of a number of these, including ILO Convention 87 (Convention Concerning Freedom of Association and Protection of the Right to Organize) and Convention 98 (Convention Concerning the Application of the Principles of the Right to Organize and to Bargain Collectively), remained uneven. Implementation of legislation related to workplace health and safety likewise remained uneven. Child labor continued, including in its worst forms and particularly in the seasonal agricultural sector, despite ongoing government efforts to address the issue. See the Department of State’s annual Country Reports on Human Rights Practices and the Department of Labor’s annual Findings on the Worst Forms of Child Labor for more details on Turkey’s labor sector and the challenges it continues to face.

The Overseas Private Investment Corporation (OPIC) offers a full range of programs in Turkey, including political risk insurance for U.S. investors, under its bilateral agreement. OPIC is also active in financing private investment projects implemented by U.S. investors in Turkey, including public hospital projects. Currently, OPIC is looking to support increased lending for renewable energy and energy efficiency projects in Turkey. Small- and medium-sized U.S. investors in Turkey are also eligible to utilize the Small Business Center facility at OPIC, offering OPIC finance and insurance support on an expedited basis for loans from $100,000 to $10 million. In 1987, Turkey became a member of the Multinational Investment Guarantee Agency (MIGA).

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Host Country Statistical Source USG or International Statistical Source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2016 $857 billion 2014 $798.4 billion www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical Source USG or International Statistical Source USG or International Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2015 $5 billion 2014 $9.1 billion http://www.tcmb.gov.tr 
Host country’s FDI in the United States ($M USD, stock positions) 2015 $1.3 billion 2014 $1.8 billion BEA data available at http://bea.gov/international/direct_investment_
Total inbound stock of FDI as % host GDP NA NA 2012 19.8% http://unctad.org/en/Pages/

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data (2016 provisional) www.tcmb.gov.tr 
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 6.886 100% Total Outward 3.122 100%
Holland 0.956 14% USA 0.836 27%
United Kingdom 0.950 14% Holland 0.816 26%
Azerbaijan 0.652 9% United Kingdom 0.336 11%
Germany 0.430 6% Azerbaijan 0.227 7%
Spain 0.430 6% Germany 0.125 4%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets
Top Five Partners (Millions, US Dollars) June 2016
Total Equity Securities Total Debt Securities
All Countries 1,427 100% All Countries 535 100% All Countries 892 100%
Cayman Islands 402 28% United States 289 54% Cayman Islands 402 45%
United States 319 22% Luxembourg 125 23% Lebanon 226 25%
Lebanon 226 16% Germany 36 7% Germany 33 4%
Luxembourg 139 9% United Kingdom 20 4% United States 30 3%
Germany 69 5% Kuwait 19 4% Azerbaijan 28 3%

Ece Deliormanli
Economic Specialist
American Embassy Ankara
110 Atatürk Blvd.
Kavaklıdere, 06100 Ankara – Turkey
Phone: +90 (312) 455-5555

2017 Investment Climate Statements: Turkey
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